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Expected sales for next year for the Beresford Company is 150,000 units. Curt Planters, manager of the Beresford Division, is under pressure to improve the performance of the Division. As he plans for next year, he has to decide whether to produce 150,000 units or 170,000 units. The Beresford Company will have higher net income if Curt Planters decides to produce A. 150,000 units if income is measured under variable costing. B. 170,000 units if income is measured under variable costing. C. 150,000 units if income is measured under absorption costing. D. 170,000 units if income is measured under absorption costing.

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Answer:

D) the profit under absorption costing will be greater

Explanation:

The difference between profit under variable costing and under absorption costing is simply the value of the change in inventory.

Usually, a decrease in inventory would cause profit under absorption costing to be lower . This is so because cost of goods sold would become higher leading to a lower profit

On the other and, an increase in inventory would mean that the value of closing inventory would be higher and this would produce a cost of goods sold value lower than that obtainable using variable costing. And this would produce a greater profit than the variable costing method

If Beresford produces 170,000 units thereby increasing inventory by 20, 000 units (170,000 -150,000), the profit under absorption costing will be greater

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